Mixing 401(k) Contributions and Catch-Up Contributions

[Guest zora]

Can we mix our 401(k) contributions with our catch-up contributions as long as we maintain separate recordkeeping, or should we maintain actual, separate sub-accounts for each?

[Archimage]

You don't even have to do maintain separate recordkeeping.

[Guest zora]

Thanks, but now I'm confused.

If we don't maintain separate recordkeeping, how would we know how to do the end of the year corrections such as distributions of excess contributions or excess deferrals?

[Mike Preston]

Thanks, but now I'm confused.

If we don't maintain separate recordkeeping, how would we know how to do the end of the year corrections such as distributions of excess contributions or excess deferrals?

It is almost impossible in most cases to determine, as contributions are being made, whether they are catch up contributions or not. Sure, for contributions in excess of the 402(g) limitation it might be possible, but for all other sources of catchup contributions, such as amounts contributed in excess of the adp test limitations or amounts contributed in excess of a payroll limitation (say, 6% of pay), you really can't tell whether the violation has taken place until the end of the year.

Hence, the IRS has stated in their regulations on this subject that there is no need to keep track of contributions as they are made as being normal or catchup, since any determination being made during the year might (in fact is most likely to be) modified at the end of the year when the full facts are known.

Further, the IRS has made it acceptable to meld catchup contributions into regular contributions as far as account balances go. For things like top-heavy testing and other account balance determinations, they have said that catchup contributions are included to the extent they aren't ejected from the plan.

So there really is no reason I can think of why a plan sponsor would want to keep track, separately, of catchup contributions.